Finance minister Jaswant Singh: Giving a boost to consumption-led growth

If anyone was paying attention back on February 28, 2003, the day Finance Minister Jaswant Singh presented his maiden Budget, and to some of the nuances that pepper the few statements the reticent man makes, what happened on January 8 and 9 shouldn't have come as too much of a surprise. Yes, the slew of goodies-for industry, consumers and farmers-that he announced had a lot to do with politics and the fact that parliamentary election dates will be announced any day now but there was loads of economics behind them as well.

More on that in a bit but here's why you should have expected Singh to do things unconventionally. If you'd heeded his 135-minute-long Budget speech and listened carefully to some of his pronouncements ever since, then what has now been dubbed a 'mini budget' wouldn't have come as a bolt from the blue. The first indication of Singh's innovative ways came during his Budget speech, where departing from 55 years of convention, he'd merged Part A, which deals with policy, with Part B, which deals with tax proposals, making things much less cumbersome. That was hint No. 1 that this was one finance minister who you could expect to do things differently. The other hints came later, whenever Singh has quietly commented about how managing India's vast and complex economy cannot be done by pronouncements that are made on a single day.

In a sense, Singh's recent announcements are a way of demystifying Budget Day, when every year the nation goes into a state of suspended animation. After all, why should tax cuts, customs duty rationalisation, schemes for rural borrowers and the like be all announced on a particular day in February rather than whenever it is opportune to do so? Alright, it so happens that this time there was political opportunism in good measure that may have dictated the announcement of a bagful of sops but that wasn't all. For a man who claims not to be an economist-and one who prefers not to have too many of them in the proximity of his ministry-Singh has demonstrated shrewd economic logic by the timing of his announcements.

Forget the polls for a moment. GDP growth in the last quarter topped 8.3 per cent; the stockmarkets are at their bullish best; foreign exchange reserves are at more than $100 billion; interest rates are at their lowest in 15 years and, thanks to a bumper harvest, consumer demand as well as corporate profits are rising. Could a finance minister find a better time to surf up the crest of a recovering business cycle?

Neat Piece Of Work

Carpe diem. Mini budget 2004 did just that. In one stroke, Singh slashed customs duty by 5 per cent, abolished the 4 per cent special additional duty and pruned duty on project imports with a minimum investment of Rs 5 crore, to 10 per cent from 25 per cent. Then there were tax sops on inputs for sectors such as information technology, power, health, civil aviation and electronics. Sweeping reforms were achieved without having to face a battery of politicians in Parliament. Neat.

Version II followed the next day. The ceiling on overseas investments was scrapped, allowing companies to invest as much as 100 per cent of their net worth; cheap credit worth Rs 50,000 crore for infrastructure was made available and a host of concessions announced for farmers and small and medium enterprises.

Back in 2003, Singh had declared that he would like to focus on improving the country's 'Gross National Contentment' rather than Gross Domestic Product. And he has. His strategy has been a simple one: put more money in the hands of businessmen as well as the consumer and consumption-led growth will follow. Provided you have the twin benefits of a good monsoon and the 'feel-good factor'-a phrase coined by the media but appropriated by politicians of the ruling coalition.

Singh, however, has little to do with those two benefits. Attribute those to pure luck, something that finance ministers have to pray for. Singh's predecessor, Yashwant Sinha, was singularly unlucky and although his budgets may have had good intentions, other factors, like the bursting of the tech bubble and an US-led economic slowdown, put paid to them.

Running High On Luck

But then for finance ministers, timing is everything. Take Singh's 'mini budget'. The proposals announced in those two days in January will cost an indirect revenue loss of Rs 12,200 crore. Yet, with some more luck, an outflow of that magnitude may not impact the state of the fiscal deficit. With good reason. First, a 7 per cent GDP growth rate-that's the RBI estimate for this year-will compensate for revenue losses. A study by the Indian Credit Rating Agency (ICRA) says the fiscal deficit for 2003-04 will be 5.4 per cent of GDP, lower than the budgeted 5.6 per cent.

More good news: year-on-year tax collections till November 2003 have grown 12.7 per cent, which is marginally higher than the budgeted 12.2 per cent. What's more, the sum total of loans and advance receipts by the government in November show that these will likely overshoot the Budget estimates by a staggering 265 per cent.

There's a third bit of luck around the corner. The government is scheduled to offload 10 per cent of its stake in three public sector giants, including ONGC and GAIL. With a booming stockmarket, these could fetch a handsome bonanza. No wonder then that Singh is confident that what the government may lose in arithmetic terms would be made up through a higher growth rate.

Yet the lucky streak can come to an end. Take the fiscal deficit. To look at the Centre's deficit alone may be short-sighted. Add to it the states' appalling figures and it bloats to more than 11 per cent of GDP. Banking on growth alone may not be enough to narrow that gap. Then there's the unfinished reforms agenda. The mini budget may be replete with sops but Singh still has to cut back on huge subsidies, widen the tax base and rein in expenditure. For these, luck and timing are not going to be enough. For whoever is in North Block after the elections-Singh or someone else-these are going to be the tough issues to tackle.

additional reporting by Amanpreet Singh

THE UNFINISHED AGENDA What's still pending in the economic ministries.

MINISTRY OF FINANCE AND COMPANY AFFAIRS/MINISTER: Jaswant Singh AGENDA: Singh's latest pre-election flurry of sops and goodies, including tax and duty cuts, is aimed at boosting the feel-good sentiment across the economy. But crucial matters remain: implementation of Value-Added Tax (VAT ) and reining in of the 5.6 per cent fiscal deficit, which is fast turning unsustainable. MINISTRY OF PETROLEUM AND NATURAL GAS/MINISTER: Ram Naik AGENDA: Naik has opened more blocks for oil exploration under the National Exploration Licensing Policy (NELP) but he has to speed up work on three new grassroot refineries-Bina, Paradeep and Bhatinda. Additional capacity: Rs 24 million tonnes. Cost: Rs 25,000 crore. MINISTRY OF POWER/MINISTER: Anant Gangaram Geete AGENDA: Efforts are on to make transmission and distribution cheaper by unbundling them from generation of power. On the cards is also a Rs 5,000-crore India Power Fund-a venture and mutual fund combo-to channel investments in the power sector. That's vital to bridge the burgeoning power deficit, currently around 10,000 MW. MINISTRY OF AGRICULTURE/MINISTER: Rajnath Singh AGENDA: Pre-poll sops like concessional loans to farmers have already been announced. In 2004, the ministry would have to ensure freer access to markets (sans middlemen) for farmers. On the cards, a model law on farm produce marketing and better access-via special TV and radio channels-to market information for farmers. MINISTRY OF CIVIL AVIATION/MINISTER: Rajiv Pratap Rudy AGENDA: Recently announced airfare cuts will boost the aviation industry but the ministry still has to implement the Naresh Chandra Committee's recommendations, which will reduce costs for domestic airlines. Plus, work on modernisation of Delhi and Mumbai airports needs to be speeded up. MINISTRY OF TEXTILES/MINISTER: Syed Shahnawaz Hussain AGENDA: Modernise weaving and processing industry-the weak link in the textile chain, boost the powerloom sector and set up a number of apparel parks. MINISTRY OF CHEMICALS & FERTILISERS/MINISTER: S.S. Dhindsa AGENDA: Implementation of the largest fertiliser plant in the world- the Oman-India project. Convesrion of costlier naphtha-based feedstock into gas/LNG based units. More efficient use of fertilisers. MINISTRY OF COMMERCE & INDUSTRY/MINISTER: Arun Jaitley AGENDA: Setting up seven more Special Economic Zones, taking the tally up to 23. Ensuring that export growth stays up despite and appreciating rupee, perhaps through concessions and sops for exporters within the WTO framework. MINISTRY OF ROAD TRANSPORT AND HIGHWAYS/Minister: B.C. Khanduri AGENDA: Complete 96 per cent of the 5,846-km Golden Quadrilateral project; award contracts for the North-South and East-West corridors; and start work on four-laning of 10,000-km roadways to link state capitals to National Highways. MINISTRY OF TELECOMMUNICATIONS/MINISTER: Arun Shourie AGENDA: Tackle the acute problem of spectrum shortage; frame a policy for next generation services (3G and 4G) and further liberalise foreign investment in the telecom sector.